Wp/29925/2012 Of M/S. Rastriya Ispat Nigam Limited v. Asst.commissioner Of Income Tax, Circle-3(1)

THE HON’BLE SRI JUSTICE DILIP B.BHOSALE AND THE HON’BLE SRI JUSTICE A.RAMALINGESWARA RAO WRIT PETITION No.29925 of 2012 ORAL ORDER:(per the Hon’ble Sri Justice Dilip B.Bhosale) This writ petition under Article 226 of the Constitution of India impugns anotice issued by the 1[st] respondent-Assistant Commissioner of Income Tax under Section 154 ofthe Income Tax Act, 1961 (for short “the Act”) on 31.08.2012, proposing torectify the concluded assessment for the Assessment Year 2005-06, asillegal, arbitrary and barred by limitation. The 1[st ]respondent issued the notice proposing to rectify a mistake in the order ofre-assessment dated 19-03-2010, made under Section 143(3) of the Act. Themistake mentioned in the notice was “incorrect set off of unabsorbeddepreciation pertaining to Assessment Years 1993-94, 1994-95, 1995-96 and1996-97 against income (under normal provisions) of Assessment Year 2005-06.” 2 . M/s. Rastriya Ispat Nigam Limited, (for short “the assessee”), theGovernment of India undertaking, is engaged in the business of manufactureand sale of Iron and Steel products. For the Assessment Year 2005-06, theassessee had filed return of income on 28-10-2005 declaring ‘NIL’ incomeafter setting off of unabsorbed depreciation of Rs.3081,03,64,095/-. Theassessee admitted total income of Rs.3099.81 Crores and claimed set off ofunabsorbed depreciation of Assessment Years 1993-94 to 1998-99aggregating Rs.3914.69 Crores. Further, the assessee admitted book profitunder Section 115JB of the Act at Rs.1107.17 Crores and the tax thereon wasworked out at Rs.86.81 Crores. The return of income was accordinglyprocessed under Section 143(1) of the Act on 31-03-2006, accepting the income returned, and it resulted in refund of Rs.28.91 Crores. Thereafter, acase of the assessee was taken up for scrutiny and re-assessment was completed under Section 143(3) of the Act, vide orderdated 26-03-2007, determining the total income at Rs.3127,21,34,124/- andafter setting off of the unabsorbed depreciation to the extent of the income sodetermined, the taxable income under normal provisions was again computedat ‘NIL’. The assessment, that was completed vide order dated 26-03-2007,was then reopened by issue of a notice under Section 148 of the Act dated 20-10-2009, in respect of computation of Minimum Alternative Tax. Thereassessment was finally resulted in an order, dated 19[th] March, 2010, underSections 147 of the Act, raising certain additional demands. Book profit wasaccordingly assessed at Rs.2266.25 Crores as against Rs.1107.17 Croresadmitted by the assessee. In this backdrop, the impugned notice dated31.08.2012 under Section 154 of the Act was issued, proposing to rectify themistake, as indicated in the notice, in the assessment completed vide orderdated 19-03-2010. It would be relevant to reproduce the impugned notice dated31.08.2012, which reads thus: NOTICE UNDER SECTION 154/155 OF THE INCOMETAX ACT, 1961 Office of the Assistant Commissioner of Income Tax Circle-3(1), Visakhapatnam PAN /2005-06 Date. 31-08-2012. TO M/s.Rashtriya Ispat Nigam Ltd., Visakhapatnam. Sir, The order u/s.143 (3) r.w.s. 147 of the I.T. Act., 1961 for the A.Y. 2005-06 made on 19-03-2010 inyour case requires to be amended as there is a mistake apparent from the record within themeaning of section 154/155 of the income tax Act, 1961. The rectification of the mistake, as perdetails given below, will have the effect of enhancing the assessment/reducing therefund/increasing your liability and therefore, if you wish to be heard in this connection you are requested to appear in person or by an authorized representative in my office at VisakhapatnamOn 17-09-2012 at 11.30 AM. If so however, you intend sending a written reply to this notice anddo not wish to be heard in person, you are requested to ensure that your reply reaches me on orbefore the date mentioned above. Yours faithfully, (Ch.HIMA BINDU)Assistant Commissioner of IncometaxCircle-3(1), Visakhapatnam. Details of Mistake : requested to appear in person or by an authorized representative in my office at VisakhapatnamOn 17-09-2012 at 11.30 AM. If so however, you intend sending a written reply to this notice anddo not wish to be heard in person, you are requested to ensure that your reply reaches me on orbefore the date mentioned above. Yours faithfully, (Ch.HIMA BINDU)Assistant Commissioner of IncometaxCircle-3(1), Visakhapatnam. Details of Mistake : Incorrect set off of unabsorbed depreciation pertaining toAsst.Years 1993-94, 1994-95, 1995-96 & 1996-97 againstIncome (under normal provisions) of Asst.Year 2005-06. 3 . The assessee had commenced its business in 1982, and according tothem, they had accumulated unabsorbed depreciation aggregating Rs.3914.68Crores with respect to Assessment Years 1993-94 to 1998-99. Under theprovisions of Section 32(2) of the Act, as it stood at the relevant time,depreciation to the extent it was not adjusted in any assessment could becarried forward and treated as depreciation for subsequent year, and so onuntil the entire unabsorbed depreciation was adjusted against the income. ByFinance Act (No.2), 1996 w.e.f 04-07-1997, a time limit was introduced foradjusting the unabsorbed depreciation. After this amendment, such anunabsorbed depreciation could be carried forward only for a limited period ofeight assessment years, subsequent to the year in which depreciation wascomputed. On the basis of a clarification issued by the Finance Minister, theCentral Board of Direct Taxes issued Circular No.762, dated 18-02-1997clarifying that depreciation computed upto 1996-97 i.e., prior to theamendment with effect from 1997, could be carried forward and considered forset off against income under any head for Assessment Year 1997-98 andseven subsequent assessment years. The Parliament again amended Section32 of the Act by Finance Act, 2001 w.e.f.01-04-2002 and the original provisions of Section 32 of the Act were restored, removing the time limit ofeight years that was introduced with effect from 04.07.1997. In view thereof,according to the assessee, in the return filed for the Assessment Year 2005-06, which went through various processes as indicated above, thedepreciation to the extent it was unabsorbed and had been determined uptothe years 1996-97 was adjusted and as such their income wasdetermined/computed at Nil. 3.1 It is against this backdrop, according to the assessee, what was sought tobe reopened by issue of notice under Section 148 dated 20.10.2009 was thebook-profit in the assessment order dated 26-03-2007, which had escapedassessment at the time of assessment under Section 143 (3) of the Act.Further, according to the assessee, there was no reference in the re-assessment order dated 19-03-2010 about the income sought to bedetermined under the regular provisions of the Act. The case of the assesseeis that the re-assessment proceedings initiated vide notice dated 20.10.2009under Section 148 of the Act was only to consider the book-profit that escapedthe assessment at the time the original assessment was completed. 4. The question, therefore, falls for our consideration is whether the limitationfor issuing notice under Section 154 of the Act, commences from the date ofassessment order under Section 143 (3) of the Act or from the order of re-assessment under Section 147 read with Section 148 of the Act? According tothe assessee since the dispute relates to allowing unabsorbed depreciation, inthe assessment order dated 26.03.2007, under Section 143(3) of the Act, thelimitation of four years under Section 154(7) would commence from the date ofthe assessment order dated 26.03.2007 and not from the date of re-assessment order, under Section 147 read with Section 148 of the Act, dated19.03.2010. As against this, according to the Revenue, original order dated26.03.2007 under Section 143 (3) got merged with the reassessment orderdated 19.03.2010 and, therefore, limitation of four years under Section 154(7)would commence from the date of reassessment order under Section 147 readwith 148 of the Act. 5. We have heard the learned counsel for the parties at considerable lengthand with their assistance gone through the entire material placed before usand the relevant provisions of the Act. We have also perused the judgmentscited by them in support of their contentions. 6 . Sri S.Ravi, the learned Senior Counsel for the assessee, at the outset,submitted that the proposed rectification under Section 154 of the Act for theAssessment Year 2005-06 is barred by limitation. After inviting our attention tothe order of assessment under Section 143(3) of the Act dated 26-03-2007, hesubmitted that the order of reassessment under Section 147 of the Act dated19-03-2010 did not disturb the said order (26.03.2007) of assessment madeunder regular provisions of the Act, and what was considered in thereassessment was only computation of income for the purpose of levy ofMinimum Alternative Tax under Section 115JB of the Act. In short, hesubmitted that income under the regular provisions of the Act and thecomputation thereof was not touched in the order dated 19.03.2010. He,therefore, submitted that limitation provided in Section 154(7) of the Act wouldbegin to run from the end of the financial year in which the order sought to berectified was passed i.e., order dated 26-03-2007. He submitted that the lastdate of the previous year was 31-03-2007 and four years limitation underSection 154 (7) would expire on 31-03-2011 and, therefore, notice underSection 154 of the Act issued on 31-08-2012 was hopelessly barred bylimitation. In support of this contention, he placed reliance upon the judgmentof the Supreme Court to which we will make reference, in the course of thejudgment, at an appropriate stage. 7 . On the other hand, Sri B.Narasimha Sarma, learned Counsel for theRevenue placed heavy reliance upon the judgment of the Supreme Court inHind Wire Industries Ltd., Vs. Commissioner of Income Tax() to submitthat the order of assessment merges with the order of re-assessment and,therefore, the period of limitation requires to be computed from the order ofreassessment. In present case, he submitted, the order of assessment under Section 143 (3) of the Act dated 26-03-2007 merged with the order ofreassessment under Section 147 dated 19-03-2010 and, therefore, the periodof limitation would start to run from 31-03-2010, and would expire on 31-03-2013, and since the notice was issued on 31-08-2012, it cannot be stated tobe barred by limitation. He also invited our attention to the impugned notice tocontend that the notice itself makes it clear that the order under Section143(3) read with 147 of the Act dated 19-03-2010 requires amendment underSection 154 of the Act. The notice also refers to the details of mistake. He,therefore, submitted that when the notice specifically speaks aboutreassessment order dated 19-03-2010, the Court, at this stage of theproceedings, cannot proceed on the assumption that it was in respect of theregular assessment dated 26-03-2007. 8. In rejoinder, Sri S.Ravi, the learned Senior Counsel invited our attention tothe judgment of the Supreme Court in Commissioner of Income Tax,Chennai Vs. M/s.Alagendran Finance Ltd.,() and submitted that theSupreme Court has clarified that “merger”, as observed in Hind WireIndustries Ltd.,(supra), is only on the points which are dealt with in the laterproceedings and it would not mean that the entire proceedings has beenreopened. He submitted that although the Supreme Court in M/s.AlagendranFinance Ltd., (supra) was concerned with Section 263 of the Act, the judgmentis on all fours. He submitted that use of the word ‘any order’ in Section 154 ofthe act and the words ‘the order’ in Section 263 was necessitated by the factthat in the former case it is the very same officer invokes the jurisdiction, butin the latter case it is a superior officer. 9. Before we deal with the question, it would be advantageous to reproducethe relevant portion of Section 154 of the Act, which reads thus:- Rectification of mistake. 154. (1) With a view to rectifying any mistake apparent from 9. Before we deal with the question, it would be advantageous to reproducethe relevant portion of Section 154 of the Act, which reads thus:- Rectification of mistake. 154. (1) With a view to rectifying any mistake apparent from the record an income -tax authority referred to in section 116 may,- a. amend any order passed by it under the provisionsof this Act; b. ……. c. ……. (1A) Where any matter has been considered and decided in any proceeding by way ofappeal or revision relating to an order referred to in sub-section (1), the authority passingsuch order may, notwithstanding anything contained in any law for the time being inforce, amend the order under that sub-section in relation to any matter other than thematter which has been so considered and decided. (2) Subject to the other provisions of this section, the authority concerned- (a) may make an amendment under sub-section (1) of its own motion, and (b) shall make such amendment for rectifying any such mistake which has been broughtto its notice by the assessee [or by the deductor], and where the authority concerned isthe Commissioner (Appeals), by the [Assessing] Officer also. (3) ….. (4) ….. (5) ….. (6) ….. (7) Save as otherwise provided in section 155 or sub-section (4) of section 186 noamendment under this section shall be made after the expiry of four years [fromthe end of the financial year in which the order sought to be amended was passed]. (8) ….” Similarly, it would be necessary to reproduce relevant portion of theprovisions contained in Section 147 of the Act, which reads thus:- Income escaping assessment. 147. If the [Assessing] Officer [has reason to believe] that any income chargeable totax has escaped assessment for any assessment year, he may, subject to theprovisions of sections 148 to 153, assess or reassess such income and also any otherincome chargeable to tax which has escaped assessment and which comes to hisnotice subsequently in the course of the proceedings under this section, or recomputed the loss or the depreciation proceedings under this section, ore recomputed the loss orthe depreciation allowance or any other allowance, as the case may be, for theassessment year concerned (hereafter in this section and in sections 148 to 153referred to as the relevant assessment year): Provided that where an assessment under sub-section (3) of section 143 or thissection has been made for the relevant assessment year, no action shall be takenunder this section after the expiry of four years from the end of the relevant assessmentyear, unless any income chargeable to tax has escaped assessment for suchassessment year by reason of the failure on the part of the assessee to make a returnunder section 139 or in response to a notice issued under sub-section (1) of section 142or section 148 or to disclose fully and truly all material facts necessary for hisassessment, for that assessment year: …….. …….. …….. Explanation 2._ For the purposes of this section, the following shall also be deemed tobe cases where income chargeable to tax has escaped assessment, namely:- a. ….. b. .... c. Where an assessment has been made, but- (i) income chargeable to tax has been underassessed; or (ii) …… (iii) ….. (iv) excessive loss or depreciation allowance or any other allowance under this Act has beencomputed;] 10.The arguments advanced by learned counsel for the parties detained ourattention for quite sometime on the judgments of the Supreme Court in HindWire Industries Limited (supra) and M/s.Alagendran Finance Ltd., (supra).We deem it appropriate to look into these judgments in detail, to appreciate andto find out whether these judgments support their submissions. 10.1 In Hind Wire Industries Limited (supra) Sub-section (7) of Section 154 a. ….. b. .... c. Where an assessment has been made, but- (i) income chargeable to tax has been underassessed; or (ii) …… (iii) ….. (iv) excessive loss or depreciation allowance or any other allowance under this Act has beencomputed;] 10.The arguments advanced by learned counsel for the parties detained ourattention for quite sometime on the judgments of the Supreme Court in HindWire Industries Limited (supra) and M/s.Alagendran Finance Ltd., (supra).We deem it appropriate to look into these judgments in detail, to appreciate andto find out whether these judgments support their submissions. 10.1 In Hind Wire Industries Limited (supra) Sub-section (7) of Section 154 of the Act, as it then stood, fell for consideration, in particular the expression“from the date of order sought to be amended” therein, of the Supreme Court.The background facts against which the Supreme Court considered the saidprovision are that the assessee was assessed for income tax originally underthe assessment order dated 21-09-1979. The assessee had filed a petition forrectification of the said order under Section 154 of the Act on the ground thatthe Income Tax Officer had not taken into consideration the shift allowanceavailable to the assessee. Consequent upon this application, the assessmentorder was rectified on 12-07-1982. Thereafter, the assessee again applied forrectification of the fresh order of 12-07-1982 on 4[th] July, 1986 contending thatwhile he was entitled to depreciation on factory building at the rate of 10%, hewas allowed the depreciation only at the rate of 5%. The Income Tax Officerdismissed the assessee’s claim on the ground that the application was beyondtime. This order was confirmed by the Appellate Assistant Commissioner. Inthe appeal, the Tribunal allowed the application holding that application made on4[th] July, 1986 was within 4 years of the fresh order of assessment made on12[th] July, 1982 and hence within limitation. On reference, the High Courtreversed the order of the Tribunal holding that the period of 4 years ought tohave been calculated from the initial order of assessment viz., from 21[st]September, 1979 and not from the fresh order of assessment passed on 12[th]July, 1982. There was no dispute that the assessee was entitled to 10%depreciation allowance on the factory building and, therefore, it was observedthat it had to be granted to him if it was held that the rectification applicationwas made within time. 10.2 In this backdrop, the Supreme Court considered the expression “from thedate of order sought to be amended” in Sub-section (7) of Section 154, as itstood then and observed that it is obvious that the word ‘order’ has not beenqualified in any way and it does not necessarily mean the original order. It canbe “any order” including the amended or rectified order. 10.3 The Supreme Court considered several judgments to which we wouldmake a brief reference in the subsequent paragraphs of this judgment. At this stage, we would like to reproduce the concluding paragraph in Hind WireIndustries Limited (supra) which reads thus: 10.2 In this backdrop, the Supreme Court considered the expression “from thedate of order sought to be amended” in Sub-section (7) of Section 154, as itstood then and observed that it is obvious that the word ‘order’ has not beenqualified in any way and it does not necessarily mean the original order. It canbe “any order” including the amended or rectified order. 10.3 The Supreme Court considered several judgments to which we wouldmake a brief reference in the subsequent paragraphs of this judgment. At this stage, we would like to reproduce the concluding paragraph in Hind WireIndustries Limited (supra) which reads thus: “ In view of these authorities taking the view that the word ‘any’ in the expression “ordersought to be amended” would mean even the rectified order, we are satisfied that theHigh Court was wrong in setting aside the decision of the Tribunal Shri G.ViswanathaIyer, learned senior counsel cited before us the decisions of the Calcutta, Gujarat, Madras andOrissa High Courts in Bharat Textiles Works v. Income Tax Officer Circle-IV, 3-A,(Company)(1978) 114 ITR,28: (1979) Tax LR 206), Ahmedabad Sarangpur Mills Co.Ltd. v. A.S.Manohar,Income-Tax Officer, Circle IV, Ward-A,(Companies) Ahmedabad (1976) 102 ITR 712, Kothari(Madras) Ltd. V. Agriculture Income Tax Officer, (1989) 177 ITR 538: (1988 Tax LR 1505), andCommr. Of Income-Tax v. Kalinga Tubes (1991) 187 ITR 595, respectively in support of hiscontention that the word ‘any’ used in the expression “order sought to be amended” wouldmean the original order of the assessment. As against this, Dr.Shankar Ghose, learned seniorcounsel referred us to the decisions of the Patna and Karnataka High Courts in Bihar StateRoad Corporation v. Commr.of Income-Tax, (1986) 162 ITR 114 at 130 and Commr Income-Tax, Karnataka-II Bangalore v. Mysore Iron and Steel Ltd., (1986) 157 ITR 531, respectivelywhich decisions have taken the contrary view. However, in view of the decisions of thisCourt referred to above, we are of the opinion that the view taken by the Tribunal in thepresent case is the correct one. We, therefore, set aside the impugned order of the HighCourt and restore that of the Tribunal. The appeals are allowed accordingly with noorder as to costs. (emphasis supplied) 11. The Supreme Court in M/s.Alagendran Finance Ltd., (supra) consideredthe question “whether for the purpose of computing the period of limitationenvisaged under Sub-section (2) of Section 263 of the Act, the date of order ofassessment or that of the reassessment, is to be taken into consideration?”.The question arose for consideration against the facts that the assessee hadfiled its returns for the Assessment Years 1994-95, 1995-96 and 1996-97 on23-11-1994, 27-11-1995 and 26-11-1997 respectively and the assessment forthe year 1994-95 was completed on 27-02-1997 and those of the AssessmentYears 1995-96 and 1996-97 were completed on 12-05-1997 and 30-03-1998respectively. In the orders of assessment, the assessee’s return under theHead “Lease Equalization Fund” was accepted. (emphasis supplied) 11. The Supreme Court in M/s.Alagendran Finance Ltd., (supra) consideredthe question “whether for the purpose of computing the period of limitationenvisaged under Sub-section (2) of Section 263 of the Act, the date of order ofassessment or that of the reassessment, is to be taken into consideration?”.The question arose for consideration against the facts that the assessee hadfiled its returns for the Assessment Years 1994-95, 1995-96 and 1996-97 on23-11-1994, 27-11-1995 and 26-11-1997 respectively and the assessment forthe year 1994-95 was completed on 27-02-1997 and those of the AssessmentYears 1995-96 and 1996-97 were completed on 12-05-1997 and 30-03-1998respectively. In the orders of assessment, the assessee’s return under theHead “Lease Equalization Fund” was accepted. 11.1 The proceedings for reassessment were initiated by the Assessing Officeron 05-03-2002. Orders of reassessment were passed on 28-03-2002.Proceedings for reassessment, however, were initiated only in respect of threeitems viz, (i) the expenses claimed for share issue, (ii) bad and doubtful debtsand (iii) excess depreciation on gas cylinders and goods containers. Althoughthe assessee’s return in respect of lease equalization was not the subjectmatter of the reassessment proceedings, the Commissioner of Income Taxpurported to invoke his revisional jurisdiction in terms of Section 263 of the Actand by an order dated 29-03-2004 held that the Orders of the Assessing Officerwere prejudicial to the interest of Revenue as the lease rentals had not beenproperly brought to tax. Having so observed, all the three assessments werereopened under Section 263 of the Act and the Assessing Officer was directedto check and assess the lease rentals from Lease Equalization Fund, if any,and to bring it to tax for all the above three years. 11.2 The Assistant Commissioner, accordingly, carried out the reassessmentproceedings only in respect of income on equalization reserve holding that thededuction made from the gross lease rent is only a provisional and not anactual expenditure, and therefore, the same was to be disallowed and added tothe income returned. The Income Tax Appellate Tribunal found favour with thecontention of the assessee that the said purported proceedings under Section263 of the Act were barred by limitation. The Tribunal after referring to severaldecisions of the Supreme Court and High Courts, ultimately held that the orderpassed under Section 263 of the Act, dated 29-03-2004 was clearly barred bylimitation with reference to the orders passed under Section 143(3) of the Act. 11.3 The Revenue preferred an appeal against the order of Tribunal before HighCourt. The High Court dismissed the appeal and confirmed the order passed bythe Tribunal. Against the order of the High Court, the parties were before theSupreme Court. The Supreme Court after considering its judgment in HindWire Industries Limited (supra) in paragraphs 9 and 10 observed thus:- “9. We may at this juncture also notice the decision of this Court in Hind Wire Industries Ltd.(supra) wherein the decision of this Court in V. Jaganmohan Rao v. CIT and CEPT (75 ITR373) interpreting the provisions of Section 34 of the Act was reproduced which reads as under : "Section 34 in terms states that once the Income tax officer decides to reopen theassessment, he could do so within the period prescribed by serving on the person liable to paytax a notice containing all or any of the requirements which may be included in a notice underSection 22(2) and may proceed to assess or reassess such income profits or gains. It is,therefore, manifest that once assessment is reopened by issuing a notice under sub-section(2) of Section 22, the previous underassessment is set aside and the whole assessmentproceedings start afresh. When once valid proceedings are started under Section 34(1) (b), theIncome-tax Officer had not only the jurisdiction, but it was his duty to levy tax on the entireincome that had escaped assessment during that year." : "Section 34 in terms states that once the Income tax officer decides to reopen theassessment, he could do so within the period prescribed by serving on the person liable to paytax a notice containing all or any of the requirements which may be included in a notice underSection 22(2) and may proceed to assess or reassess such income profits or gains. It is,therefore, manifest that once assessment is reopened by issuing a notice under sub-section(2) of Section 22, the previous underassessment is set aside and the whole assessmentproceedings start afresh. When once valid proceedings are started under Section 34(1) (b), theIncome-tax Officer had not only the jurisdiction, but it was his duty to levy tax on the entireincome that had escaped assessment during that year." 10. There may not be any doubt or dispute that once an order of assessment isreopened, the previous underassessment will be held to be set aside and the wholeproceedings would start afresh but the same would not mean that even when thesubject matter of reassessment is distinct and different, the entire proceeding ofassessment would be deemed to have been reopened. (emphasis supplied) 11.4 Then, in paragraph 12 of the judgment (in M/s.Alagendran Finance Ltd.)the Supreme Court after referring to Sun Engineering Works Pvt.Ltd., (supra)in depth, observed thus: 12. We may at this juncture also take note of the fact that even the Tribunal found that all thesubsequent events were in respect of the matters other than the allowance of 'leaseequalization fund'. The said finding of fact is binding on us. Doctrine of merger, therefore, inthe fact situation obtaining herein cannot be said to have any application whatsoever. Itis not a case where the subject matter of reassessment and subject matter ofassessment were the same. They were not”. 11.5 The Supreme Court, then proceeded to consider the judgment of MadrasHigh Court in Commissioner of Wealth-Tax Vs. A.K.Thanga Pillai() and thejudgment of the Supreme Court in Commissioner of Income Tax Vs. ShriAbuda Mills Ltd.,() and in concluding paragraph 15 of the judgment (inM/s.Alagendran Finance Ltd.) observed thus:- 15. We, therefore, are clearly of the opinion that keeping in view the facts and circumstancesof this case and, in particular, having regard to the fact that the Commissioner of Income Taxexercising its revisional jurisdiction reopened the order of assessment only in relation to leaseequalization fund which being not the subject of the reassessment proceedings, the period oflimitation provided for under sub-section (2) of Section 263 of the Act would begin torun from the date of the order of assessment and not from the order of reassessment.The revisional jurisdiction having, thus, been invoked by the Commissioner of IncomeTax beyond the period of limitation, it was wholly without jurisdiction rendering theentire proceeding a nullity. (emphasis supplied) 12. In Hind Wire Industries Ltd. (supra) the Supreme Court considered theprovisions contained in Section 154 of the Act, in the light of almost similarfacts. The only difference is that, in the case before the Supreme Court, theassessee had filed a petition for rectification of the re-assessment order dated12.07.1982 contending that while he was entitled to depreciation on factorybuilding at the rate of 10%, he was allowed only at the rate of 5%. In thisbackdrop, the Supreme Court held that the assessee would be entitled forrectification if his petition under Section 154 of the Act was within the time. 12.1 In M/s.Alagendran Finance Ltd., (supra) the question of Limitation wasraised in the proceedings under Section 263 of the Act. While dealing with thequestion, on the facts and in the circumstances of the case, the Supreme Courtobserved that the order passed by the Commissioner of Income Tax wouldclearly demonstrate that only that part of order of assessment which related tolease equalization fund was found to be prejudicial to the interest of theRevenue. The proceedings for reassessment have nothing to do with the said 12.1 In M/s.Alagendran Finance Ltd., (supra) the question of Limitation wasraised in the proceedings under Section 263 of the Act. While dealing with thequestion, on the facts and in the circumstances of the case, the Supreme Courtobserved that the order passed by the Commissioner of Income Tax wouldclearly demonstrate that only that part of order of assessment which related tolease equalization fund was found to be prejudicial to the interest of theRevenue. The proceedings for reassessment have nothing to do with the said head of income. Doctrine of merger, therefore, would not apply in a case of thisnature. Further, in this case Court considered the judgment in Hind WireIndustries Limited (supra) and without disturbing the ratio laid down therein,on the facts and in the circumstances of the case and in exercise of therevisional powers under Section 263 of the Act, observed that once an order ofassessment is re-opened, the previous under-assessment would be held to beset aside and the whole proceedings would start afresh and then added that butthe same would not mean that when the subject matter of re-assessment isdistinct and different, the entire proceedings of assessment would be deemedto have been re-opened. 13. I n International Cotton Corporation Vs. C.T.O() the Supreme Courtconsidered the similar expression in Rule 38 of the Mysore Sales Tax Act andwhile dealing with the point, as raised in the instant writ petition, in paragraph 9of the judgment observed thus:- “The other attack that the rectification order is beyond the point of time provided in Rule 38 ofthe Mysore Sales Tax Rules is also without substance. What was sought to be rectified wasthe assessment order rectified as a consequence of this Court’s decision in Yaddalam’s case(AIR 1965 SC 1510). After such rectification the original assessment order was no longerin force and that was not the order sought to be rectified. It is admitted that all therectification orders would be within time calculated from the original rectification order.Rule 38 itself speaks of “any order” and there is no doubt that the rectified order is also“any order” which can be rectified under Rule.38” (emphasis supplied) 14. The decision of the Supreme Court in International CottonCorporation(supra) was endorsed by the Supreme Court in DeputyCommissioner of Commercial Taxes Vs. H.R.Sri Ramulu() in the followingterms:- “The reason for that is that once an assessment is reopened, the initial order forassessment ceases to be operative. The effect of reopening the assessment is to vacateor set aside the initial order for assessment and to substitute in its place the order made (emphasis supplied) 14. The decision of the Supreme Court in International CottonCorporation(supra) was endorsed by the Supreme Court in DeputyCommissioner of Commercial Taxes Vs. H.R.Sri Ramulu() in the followingterms:- “The reason for that is that once an assessment is reopened, the initial order forassessment ceases to be operative. The effect of reopening the assessment is to vacateor set aside the initial order for assessment and to substitute in its place the order made on reassessment. The initial order for reassessment cannot be said to survive, even partially,although the jurisdiction for reassessment arises in a limited field or only with respect to a partof the matter covered by the initial assessment order. The result of reopening theassessment is that a fresh order for reassessment would have to be made including forthose matters in respect of which there is no allegation of the turnover escapingassessment. As it is, we find that in the present case the assessment orders made underSection 12A were comprehensive orders and were not confined merely to matters which hadescaped assessment earlier. In the circumstance, the only orders which could be subject-matter of revision by the appellant were the orders made under Section 12A of the Act and notthe initial assessment orders. In the case of J.Jatganmohan Rao v. Commr. Of Income-taxand Excess Profits Tax, Andhra Pradesh (1970) 75 ITR 373 : AIR 1970 SC 30-0), this Courtdealt with Section 34 of the Indian Income-tax Act,1922, which relates to reassessment in thecase of income escaping assessment. It was held by this Court that once assessment isreopened, the previous under-assessment is set aside and the whole proceedings startafresh. Ramaswamy,J., speaking for the court observed: “ Section 34 in terms states thatonce the Income-tax Officer decides to reopen the assessment he could do so within theperiod prescribed by serving on the person liable to pay tax a notice containing all or any ofthe requirements which may be included in a notice under Section 22(2) and may proceed toassess or reassess such income, profits or gains. It is, therefore, manifest that onceassessment is reopened by issuing a notice under sub-section (2) of Section 22 theprevious under-assessment is set aside and the whole assessment proceedings startafresh. When once valid proceedings are started under Section 34(1)(b), the Income-taxOfficer had not only the jurisdiction but it was his duty to levy tax on the entire incomethat held escaped assessment during that year.” (emphasis supplied) 1 5 . Similarly, in Commissioner of Sales Tax, Madhya Pradesh Vs.H.M.Esufali H.M.Abdulali() the Supreme Court dealt with reassessment madeunder Section 19 of the Madhya Pradesh Central Sales Tax Act, 1958 and heldthat when reassessment is made, the former assessment is completelyreopened and in its place fresh assessment is made. While considering thesaid decision, the Supreme Court dealt with the expression “date on which theorder was passed”, which is similar to the expression, as aforementioned, in (emphasis supplied) 1 5 . Similarly, in Commissioner of Sales Tax, Madhya Pradesh Vs.H.M.Esufali H.M.Abdulali() the Supreme Court dealt with reassessment madeunder Section 19 of the Madhya Pradesh Central Sales Tax Act, 1958 and heldthat when reassessment is made, the former assessment is completelyreopened and in its place fresh assessment is made. While considering thesaid decision, the Supreme Court dealt with the expression “date on which theorder was passed”, which is similar to the expression, as aforementioned, in Sub-section (7) of Section 154 of the Act and observed that relevant provisiondid not qualify the word ‘order’ and hence period of 4 years has to be calculatedfrom the date of rectification order. For taking such view, the Supreme Courtreferred to its earlier judgment in International Cotton Corporation (supra) inwhich the Supreme Court had observed that “what is true of the assessmentmust also be true of reassessment because reassessment is nothing but afresh assessment. When reassessment is made under Section 19 (of theMadhya Pradesh Central Sales Tax Act, 1958), the former assessment iscompletely reopened and in its place fresh assessment is made. Whileassessing a dealer, the assessing authority does not merely assess him on theescaped turnover, but it assesses him on his total estimated turnover. Whilemaking reassessment under Section 19, if the assessing authority has nopower to make best judgment assessment, all that the assessee need to do toescape reassessment is to refuse to file a return or refuse to produce, taken onbehalf of the assessee is correct, the assessee can escape his liability to bereassessed by adopting an obstructive attitude. It is difficult to conceive thatsuch could be the position in law.” 16. Observations made by the Supreme Court in Commissioner of Income TaxVs.Sun Engineering Works Pvt. Ltd.,() are also relevant to appreciate and understandthe provisions contained in Section 147 of the Act better. The relevant observationsread thus: “Section 147, which is subject to Section 148, divides cases of income escaping assessmentinto two clauses i.e. viz. (a) those due to the non-submission of return of income or non-disclosure of true and full facts and (b) other instances. Explanation (1) defines as to whatconstitutes escape of assessment. In order to invoke jurisdiction under Section 147(a) of theAct, the ITO must have reason to believe that some income chargeable to tax of an assesseehas escaped assessment by reason of the omission or failure on the part of the assesseeeither to make a return under Section 139 for the relevant assessment year or to disclose fullyand truly material facts necessary for the assessment for that year. Both the conditions mustexist before an ITO can proceed to exercise jurisdiction under Section 147(a) of the Act.Under Section 147(b) the Income-tax Officer also has the jurisdiction to initiate proceedings for reassessment where he has reason to believe, on the basis of information in his possession,that income chargeable to tax has been either under assessed or has been assessed at toolow a rate or has been made the subject of excessive relief under the Act or excessive loss ordepreciation allowance has been computed. In either case whether the Income-tax Officerinvokes his jurisdiction under Clause (a) or Clause (b) or both, the proceedings for bringing totax an 'escaped assessment' can only commence by issuance of a notice under Section 148of the Act within the time prescribed under the Act. Thus, under Section 147, the assessingofficer has been vested with the power to "assess or reassess" the escaped income of anassessee. The use of the expression "assess or reassess such income or recompute the lossor depreciation allowance" in Section 147 after the conditions for reassessment are satisfied,is only relatable to the preceding expression in Clauses (a) and (b) viz. "escapedassessment". The term "escaped assessment" includes both "non-assessment" as well as"under assessment". Income is said to have "escaped assessment" within the meaning of thissection when it has not been charged in the hands of an assessee in the relevant year ofassessment. The expression "assess" refers to a situation where the assessment of theassessee for a particular year is, for the first time, made by resorting to the provisions ofSection 147 because the assessment had not been made in the regular manner under the Act.The expression "reassess" refers to a situation where an assessment has already been madebut the Income-tax Officer has, on the basis of information in his possession, reason tobelieve that there has been under assessment on account of the existence of any of thegrounds contemplated by the provisions of Section 147(b) read with the Explanation (I)thereto." 1 7 . In yet another judgment of the Supreme Court in M/s.Kundan LalSrikishan, Mathura (U.P.) Vs. Commissioner of Sales Tax, U.Pand another the question considered was whether for purposes of limitation, the date oforder of assessment for the year 1975-76 should be the date of originalassessment order, i.e., 07-02-1979 or whether it should be the date of order passed under Section 21of the U.P. Sales Tax Act (15) 1948, i.e.18-01-1980 (for short “the Sales TaxAct”)? In this case, the original assessment order for the year 1975-76 was passed on 07-02-1979. The reassessment order under Section 21of the Sales Tax Act was passed on 18-01-1980. Thereafter, in 1982 theassessee filed an application under Section 22 for the Assessment Years 1975- 76, 1976-77, 1977-78 and 1978-79 for rectification on the ground that turnoverin respect of purchases made on behalf of ex U.P. Principals had been wronglyassessed to sales tax. 17.1 The Sales Tax Officer rejected all applications, whereas the appellateauthority allowed the applications relating to Assessment Years 1976-77, 1977-78 and 1978-79 and dismissed the application for the Assessment Year 1975-76 on the ground that application for rectification was barred by limitation. TheSales Tax Tribunal allowed the appeal filed by the appellant/assessee for theyear 1975-76 on the ground that the application was within limitation, holdingthat the original assessment order dated 07-02-1979 had ceased to exist on thereopening of the assessment and the reassessment order being passed on 18-01-1980. The High Court set aside the order of Tribunal holding that theapplication for rectification of assessment for the Assessment Year 1975-76had been filed beyond three years from the date of original order dated 07-02-1979 and that the order dated 18-01-1980 had no effect on the ground oflimitation. 17.2 Against this order, matter reached the Supreme Court. The Supreme Courtset aside the order of the High Court and held that once a notice is issued forthe purpose of making reassessment, the earlier proceeding gets reopened andthe initial order of assessment ceases to be operative. The effect of reopeningthe assessment is to vacate or set aside the initial order for assessment and tosubstitute in its place the order made on reassessment. The Supreme Courtalso observed that once an assessment order had been rectified and it wassought to make a further rectification of that order, the period of limitation formaking such further rectification would commence not from the date of originalassessment but from the date of earlier rectification order. The observationsmade by the Supreme Court in the concluding paragraph are relevant.Paragraph 9 of the judgment reads thus:- “9. We do not find any merit in the submission made on behalf of the Department thatthe order passed on 18-1-1980 should be understood as an order discharging the noticeissued under S. 21 of the Act and not an order of reassessment as such. This isthe order passed on 18-1-1980 should be understood as an order discharging the noticeissued under S. 21 of the Act and not an order of reassessment as such. This is obvious from the language of S. 21 itself. Section 21 authorises the assessing authorityto make an order of assessment or reassessment. It says that if the assessingauthority has reason to believe that the whole or any part of the turnover of a dealer, forany, assessment year or part thereof, has escaped assessment to tax or has beenunder assessed or has been assessed to tax at a rate lower than that at which it isassessable under the Act, or any deductions or exemptions have been wrongly allowedin respect thereof, the assessing authority, may, after issuing notice to the dealer andmaking such inquiry as it may consider necessary, assess or re-assess the dealer ortax according to law. The assessing authority gets jurisdiction to make thereassessment by issuing a notice to the dealer as provided by S. 21 of the Act. Whenonce the notice is issued under that section the original order of assessment getsre-opened and thereafter any order made under S. 21 of the Act alone would bethe order of assessment in respect of the period in question. Section 21 of the Actdoes not require the assessing authority to pass an order deciding whether it isnecessary to proceed with the inquiry under that section or not before passing an orderof assessment or reassessment under that section. The only order which the assessingauthority is required to make under S. 21 after a notice is issued to the dealer under thatsection is an order of assessment or reassessment. It is not required to pass first anorder whether it should proceed with the reassessment proceedings or not. Such apreliminary order is not contemplated under S. 21 of the Act. Hence the order dated 18-1-1980 has to be treated as an order of assessment even though it is not in the form inwhich an order of assessment has to be passed and not as an order merely on thequestion whether the reassessment proceedings under S. 21 of the Act should